EU Referendum

Brexit: customs cooperation


Continuing on from my earlier piece on the post-Brexit "membership" of the EU's Customs Union, I've been doing a little more delving – all part of the ongoing research for the Monograph on the Single Market.

The indications are that the current obsession with the Customs Union started with the Financial Times in July of this year, when the paper reported that Whitehall was "split" on whether the UK should leave the EU's Customs Union.

But from the narrative offered, it would appear that this is based on a misunderstanding as to what is covered by the Customs Union. And there is  not one element of confusion but two. Firstly, there is a failure properly to distinguish between the Customs Union and the Single Market (both give tariff-free movement of goods within the EU). Then, as significantly, there is a mix-up between two separate concepts: the Customs Union and customs cooperation. Many share this confusion, including the European Commission (click the "Customs Union" entry).

The matter can be cleared up by reference to the Consolidated Treaties. There it can be seen that the Customs Union is Chapter 1 of Title II (TEU) – Articles 30-32 – while customs cooperation is Chapter 2 – Article 33. The two are very separate, in treaty law and in practical terms.

The Customs Union actually pre-dates customs cooperation which was not originally part of the EEC. The original cooperation agreement came outwith the European treaties, in the Naples Convention of 1967. That means that the Customs Union was in place ten years before formal cooperation was introduced, and then not as part of the European treaties. Until the late 80s, goods travelling from one Member State to another still required customs clearance, even though internal tariffs had been abolished.

Despite this, we are told that leaving the Customs Union would create difficulties with "customs formalities", and delays at the ports. But these lie in the domain of customs cooperation and are nothing to do with leaving the Customs Union. Customs "formalities" are defined by the Union Customs Code (UCC), which relies on Article 33 (TEU) for its authority. In this context, the Customs Union is an irrelevance.

But, while I pointed out in my earlier piece that the UK cannot pick up the Customs Union without a treaty framework, neither can it adopt the EU's UCC. This is applicable specifically to EU Member States and cannot be adapted for non EU-members.

Nor indeed does the Customs Code have EEA relevance, so the Efta states – such as Norway - have their own customs codes. Then, through Protocol 10 and Protocol 11 of EEA Agreement, the Efta states agree mutual border inspection programmes with the EU, and commit to "mutual assistance" on customs matters.

These separate Protocols are not part of the Single Market acquis, as such, any more than they are part of the Customs Union. They are, in effect, stand-alone agreements, bolted onto the EEA agreement. They are much the same as Switzerland negotiated in 1997. Along with Japan and China, the United States, where they are not embedded in free trade agreements, most major countries have separate customs cooperation agreements with the EU. This even includes India.

The point here is that, if the UK does not continue its participation in the EEA, it will have to secure a customs cooperation agreement with the EU. This can either be a separate treaty, part of the Article 50 settlement, or embedded in a free trade agreement.

Without such an agreement, there are going to be serious problems. At the borders, the core element of the UCC is Regulation 46 which specified that customs controls, other than random checks, "shall primarily be based on risk analysis".

This comes down to risk management, applied to reduce the number of border inspections, so that only the high-risk consignments are targeted and checked. But, unless we have close cooperation with the EU, effective risk management by EU customs officials is not possible.

As the Commission's guide indicates, this relies on building a "risk profile" for exporters. And to build those, customs officials must have access to a continuous flow of information which comes to them via the electronic EU Customs Risk Management System (CRMS).

This is built into the Customs Risk Management Framework, of which we are currently part. If we drop out of it as a result of Brexit, there will be no means of developing a targeted inspection programme for our exports to the EU. Inevitably, the number inspections carried out by customs officials will have to increase, with all that that entails.

Brexit, then, is far more than just dealing with tariffs – despite the Economist and all the others which seem obsessed with only that facet of our relationship with the EU. The risk of a customs logjam, flowing from a breakdown in customs arrangements, is potentially a far greater problem.

That is not to say that problems cannot be solved by negotiation. But customs cooperation is another facet which will have to be built into the Article 50 negotiations. Continuation of existing arrangements will not be automatic and, in order for agreement to be reached, there will also have to be a commitment to upgrades and developments to ensure we maintain operational compatibility in the future.

Possibly, though, there is an unexpected get-out for the UK. The original Naples Convention of 1967 was updated to become the Convention on Mutual Assistance and Cooperation between Customs Administrations of 1997 – called the Naples II Convention.

Taking its legal base from the Maastricht Treaty (Article K.3) – which formally introduced customs cooperation into the European treaties - this seems to be still in force. As the UK is party to it, the text could form the basic of a post-Brexit agreement. With a presumption of continuity, it could even carry over into the post-Brexit era.

Whatever mechanism we do chose, though, there is an urgent need for some clarity in the debate. The Customs Union is not an option but, regardless of the shape of the Brexit settlement, we will need to define a comprehensive agreement on customs cooperation.